Why is there an increasing need to manage cashflow and reduce the risk of bad debt?
The UK economy has been struggling in recent years for many reasons, all of which are now resulting in more business failures than have been seen since the financial crisis of 2008-2009. Business failures result in unpaid invoices, causing the creditors to suffer financial losses and increasing the strain on their own cashflow position.
So what impact will this have on your business cashflow?
The likely scenario is that cashflow will be negatively impacted by unpaid invoices, late payment (e.g. well beyond the invoice due date) and ultimately bad debt.
We are seeing this trend develop since the onset of Covid19. Cashflow is difficult enough for small to medium sized businesses (SME’s) at the best of times but since the pandemic this has become a huge problem. That said, organisations are holding onto their funds and their is an increasing amount of late payment which is having a massive effect on the cashflow for SME’s. The cycle of late payment impacts businesses because it is self propelling in nature, the more customers you have that don’t pay on time the more you struggle to pay your own bills. The current cost of living crisis is just making the situation a lot worse, especially for SME’s which depend upon energy for their businesses to function. This situation is likely to get significantly worse over the next year so careful cashflow planning and credit control / management is required.
What is the best way to manage cashflow?
There are simple measures that can support increased cashflow:
- Ensure that your customers have a good credit history.
- Implement effective credit limits.
- Chase the payment of invoices, promptly so that this doesn’t impact cashflow, we can help you do this using our credit control as a service offering.
- If you have unpaid, overdue invoices, use a credit control function such as Late Payment Service to ensure prompt settlement of the invoice before formal debt recovery is required. Late payment can easily turn into bad debt.
All SME’s need to be proactive in the management of late payments and ensuring that their cashflow position remains strong. Late Payment Service is here to support you, by ensuring prompt settlement of unpaid invoices, effective credit control and management services that are cost effective for all sizes and types of businesses.
Author – Late Payment Service Limited 2023.